Service tax / TDS
This query is : Resolved
28 October 2010
we have received bill from France, for installation charges of machine in india
pls suggest us for tds rate & we liable to pay service tax or not
pls suggest us for tds rate & we liable to pay service tax or not
30 October 2010
U/s 195 TDS rate is 40%. But it will not be applicable on total value. It has to be calculated on 10% value.
Service tax basic rate is 10%
Service tax basic rate is 10%
30 October 2010
1) if there is any professional / Techinical charges than what is the rate of tds / and service tax is payable.
2) & if the contract is indian consultant / lawyer /Contractors with forgien company & thereafter forgien company (our parents company ) remburshed to indian company than what is the effect of tds rate & service tax
3) if the consultant / lawyer /Contractors is forgien than what is the effect of tds & service
4) if the foregien company is remburshed the actual travelling expenses / food expenses than what is the effect of TAX rate / applicable or not
2) & if the contract is indian consultant / lawyer /Contractors with forgien company & thereafter forgien company (our parents company ) remburshed to indian company than what is the effect of tds rate & service tax
3) if the consultant / lawyer /Contractors is forgien than what is the effect of tds & service
4) if the foregien company is remburshed the actual travelling expenses / food expenses than what is the effect of TAX rate / applicable or not
25 July 2025
These are complex issues involving both **TDS (Tax Deducted at Source)** and **Service Tax** on cross-border services. Let me break down each part clearly:
---
### 1) **Installation charges from a foreign company for machine installed in India**
* **TDS:**
* Under **Section 195 of Income Tax Act**, payment to a non-resident is subject to TDS.
* **Rate:** Generally, TDS is 30% plus surcharge and cess on the *gross payment*. But often, tax treaties (DTAA) reduce this.
* However, **only 10% of the gross payment is considered taxable income for such contracts**, so effectively TDS is applied on 10% of payment amount.
* So, if total invoice is ₹1,00,000, TDS applies on ₹10,000 at 30%, i.e., ₹3,000.
* Exact rate depends on DTAA between India and France.
* **Service Tax:**
* Installation service is taxable under Service Tax law.
* Since service provider is foreign company and service is provided in India, **Reverse Charge Mechanism (RCM)** applies.
* So, **you (service receiver in India) are liable to pay service tax on installation charges at applicable rates** (e.g., 14% or as per current rates, including cess).
---
### 2) **If professional / technical charges are involved**
* **TDS:**
* Professional or technical services rendered by foreign entity are also covered under Section 195.
* TDS rate generally remains the same (30% on taxable portion), subject to DTAA.
* If payment is to Indian consultant, usual Indian TDS rates apply (e.g., 10% under Section 194J).
* **Service Tax:**
* If service provider is foreign, **reverse charge applies**, so service receiver in India must pay service tax on these services.
---
### 3) **If contract is with Indian consultant/lawyer/contractor but reimbursed by foreign parent company**
* **TDS:**
* Payment to Indian consultant/lawyer/contractor attracts Indian TDS as per applicable section (e.g., 10% under 194J for professionals).
* Who reimburses (foreign parent or Indian company) doesn’t affect TDS obligation on payments made to Indian party.
* **Service Tax:**
* If service provider is Indian registered under Service Tax, provider charges service tax.
* No reverse charge if Indian provider.
---
### 4) **If consultant/lawyer/contractor is foreign**
* Same as point 2, **TDS under Section 195** applies at applicable rates.
* Service tax payable under **Reverse Charge Mechanism** by Indian receiver.
---
### 5) **If foreign company reimbursed actual traveling/food expenses**
* **TDS:**
* Generally, actual reimbursed expenses are **not subject to TDS**, if supported by bills and no profit element.
* However, if reimbursed amount includes profit element or is fixed, TDS may apply on entire amount.
* **Service Tax:**
* If reimbursement is actual expenses and separately identified, **service tax is not applicable** on those reimbursements.
* If part of taxable service, service tax applies accordingly.
---
### **Summary Table**
| Scenario | TDS | Service Tax |
| ----------------------------------------------- | --------------------------------------------- | ----------------------------------------- |
| Installation charges by foreign company | TDS @ 30% on 10% of amount (subject to DTAA) | Reverse charge by Indian service receiver |
| Professional/technical fees by foreign company | TDS @ 30% on taxable amount (subject to DTAA) | Reverse charge applies |
| Indian consultant/lawyer paid by Indian company | TDS as per Indian law (10% under 194J) | Provider charges service tax |
| Indian consultant reimbursed by foreign parent | TDS on Indian consultant as usual | Service tax as usual |
| Reimbursement of actual expenses by foreign co | No TDS if actual, else TDS applies | No service tax if actual reimbursement |
---
If you want, I can help prepare a detailed advisory note or draft communication for your client covering these points clearly. Would you like that?
---
### 1) **Installation charges from a foreign company for machine installed in India**
* **TDS:**
* Under **Section 195 of Income Tax Act**, payment to a non-resident is subject to TDS.
* **Rate:** Generally, TDS is 30% plus surcharge and cess on the *gross payment*. But often, tax treaties (DTAA) reduce this.
* However, **only 10% of the gross payment is considered taxable income for such contracts**, so effectively TDS is applied on 10% of payment amount.
* So, if total invoice is ₹1,00,000, TDS applies on ₹10,000 at 30%, i.e., ₹3,000.
* Exact rate depends on DTAA between India and France.
* **Service Tax:**
* Installation service is taxable under Service Tax law.
* Since service provider is foreign company and service is provided in India, **Reverse Charge Mechanism (RCM)** applies.
* So, **you (service receiver in India) are liable to pay service tax on installation charges at applicable rates** (e.g., 14% or as per current rates, including cess).
---
### 2) **If professional / technical charges are involved**
* **TDS:**
* Professional or technical services rendered by foreign entity are also covered under Section 195.
* TDS rate generally remains the same (30% on taxable portion), subject to DTAA.
* If payment is to Indian consultant, usual Indian TDS rates apply (e.g., 10% under Section 194J).
* **Service Tax:**
* If service provider is foreign, **reverse charge applies**, so service receiver in India must pay service tax on these services.
---
### 3) **If contract is with Indian consultant/lawyer/contractor but reimbursed by foreign parent company**
* **TDS:**
* Payment to Indian consultant/lawyer/contractor attracts Indian TDS as per applicable section (e.g., 10% under 194J for professionals).
* Who reimburses (foreign parent or Indian company) doesn’t affect TDS obligation on payments made to Indian party.
* **Service Tax:**
* If service provider is Indian registered under Service Tax, provider charges service tax.
* No reverse charge if Indian provider.
---
### 4) **If consultant/lawyer/contractor is foreign**
* Same as point 2, **TDS under Section 195** applies at applicable rates.
* Service tax payable under **Reverse Charge Mechanism** by Indian receiver.
---
### 5) **If foreign company reimbursed actual traveling/food expenses**
* **TDS:**
* Generally, actual reimbursed expenses are **not subject to TDS**, if supported by bills and no profit element.
* However, if reimbursed amount includes profit element or is fixed, TDS may apply on entire amount.
* **Service Tax:**
* If reimbursement is actual expenses and separately identified, **service tax is not applicable** on those reimbursements.
* If part of taxable service, service tax applies accordingly.
---
### **Summary Table**
| Scenario | TDS | Service Tax |
| ----------------------------------------------- | --------------------------------------------- | ----------------------------------------- |
| Installation charges by foreign company | TDS @ 30% on 10% of amount (subject to DTAA) | Reverse charge by Indian service receiver |
| Professional/technical fees by foreign company | TDS @ 30% on taxable amount (subject to DTAA) | Reverse charge applies |
| Indian consultant/lawyer paid by Indian company | TDS as per Indian law (10% under 194J) | Provider charges service tax |
| Indian consultant reimbursed by foreign parent | TDS on Indian consultant as usual | Service tax as usual |
| Reimbursement of actual expenses by foreign co | No TDS if actual, else TDS applies | No service tax if actual reimbursement |
---
If you want, I can help prepare a detailed advisory note or draft communication for your client covering these points clearly. Would you like that?
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